The belt and road to recovery

By Mukhtar Hussain

The Covid-19 pandemic has caused a crisis for every economy. At the same time, it has also created an opportunity for the Belt and Road Initiative to prove its value as an international partnership that serves the international good. Amid a fragmented global response to the virus, this network of 138 countries is uniquely positioned to channel trade and investment to the developing countries that lack the resources to revive their own economies. 

China cannot do this by itself, though: no country could. If the BRI is to deliver on its potential to support the global recovery, it must be a collective effort. It must also live up to the high standards it has set itself for transparency and sustainability. 

The International Monetary Fund estimates that some USD9 trillion of fiscal stimulus has been announced in response to Covid-19 but says that the Group of 20 economies accounts for USD8 trillion of that. 

Over 170 countries beyond the G20 – or more than 40 percent of the world’s population – face a grim double-whammy. On the one hand, their healthcare infrastructure is at risk of being overwhelmed as the virus spreads; on the other, the capital they require to re-boot their economies is scarce. 

For decades, globalisation has delivered greater prosperity and better living standards to countries across the developing world. Investment in infrastructure allowed supply chains to flourish and boosted countries’ international trade. Greater trade led to greater employment and wealth creation. 

This has been China’s formula for development over the last 40 years, during which it has transformed itself from one of the world’s poorest countries into a major manufacturing base, investment destination and export market for economies around the world. 

It is no surprise, then, that international trade and investment are the DNA of the BRI. This is also what makes it so important today because there can be no global recovery, especially for developing countries, without a recovery in the cross-border flow of capital, goods and services. 

There is also no equivalent to the BRI as a network for these flows. According to HSBC Global Research, the initiative involves some 1,800 projects in countries that account for 40 percent of the world’s population. Estimates of the scale of investment already mobilised through the BRI since it was launched in 2013 range from USD120 billion to USD575 billion or even more. 

It has established pathways for private capital and trade to follow government investment and has evolved over the past seven years from a heavy focus on energy and infrastructure development to also encompass manufacturing and even services. I have seen for myself how investment under the BRI umbrella, whether in ports or auto manufacturing, can help a local economy connect with international markets, boost businesses, and generate jobs. 

Leveraging the BRI for the benefit of developing countries will depend on it being truly international, high quality and sustainable, though. 

Clearly, the BRI must function as an international network and not as a “China club” if it is to increase its positive impact. It is encouraging, for example, that at least 14 countries have signed cooperation agreements with China that allow businesses from both countries to collaborate on projects in a third market. 

High standards will be critical. The BRI has created well-documented concerns about debt sustainability and the transparency and viability of projects. Responding to these concerns at the Belt and Road Forum for International Cooperation last year, China made clear that the BRI should be “open, green and clean,” and released a debt sustainability framework for projects. Delivering on these commitments will be vital. 

Much has been said about the potential for emerging economies to become caught in Belt and Road “debt traps.” But China would surely prefer for its loans to developing countries to be serviced and repaid, making it rational for this lending to be structured accordingly. As the Covid-19 pandemic hits government finances across the developing world and calls grow for foreign creditors to forgive debt, though, it would also make sense for China to continue showing flexibility in restructuring existing loans where necessary. 

But it is not logical that China should want to be the sole financier of the BRI, despite the country’s deep financial resources. Indeed, it is very much in China’s interests to ensure that projects associated with the BRI are affordable and commercially sound. That reduces risk for its state-owned lenders, as well as giving projects a better chance of being funded by private capital. Likewise, it will not serve China or, in the long term, anyone else if energy and infrastructure projects along the Belt and Road “lock in” high carbon emissions. 

As a cosmopolitan, high quality and sustainable network for investment and trade flows, the BRI could make a vital contribution to the global recovery. For capital-constrained emerging economies, it may be the best hope for a swift revival. 

Mukhtar Hussain is the Head of Belt and Road Initiative and Business Corridors, Asia-Pacific, HSBC


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